The Impact of Emu on the Equity Cost of Capital
40 Pages Posted: 15 Dec 2006
This paper shows that during the 1990s the process of gradual economic and monetary integration, which eventually led to EMU, also resulted in a reduction in the equity cost of capital. A similar reduction was not present in the three EU countries which chose not to enter the Eurozone. There was also a strong convergence in the cost of equity across the different countries within a given industrial sector, but little convergence across the different sectors of a given EMU country. An implication for portfolio management is that country effects are becoming less important and sectoral effects are becoming more important.
Keywords: Asset Allocation, Convergence, Cost of Equity, EMU, Industrial Sectors, Integration
JEL Classification: G12, G15, G11
Suggested Citation: Suggested Citation